Is Ecommerce Taking Over The Promo Space?

Bobby Lehew - August 24, 2018

The news keeps coming: “Amazon is getting in the promotional products space.” “Walmart is now in the promotional products space.” And the latest (as of this writing): “Costco is now in the promotional products industry.”

The saber rattling is deafening from these large brands because they typically enter with an ecommerce promise that threatens to destroy all our businesses.

But why do these brands, and ecommerce in general, seem like such a threat?

Mainly, because they’re big. Big names. Big brands. Big buying power. They can make investments in tech that the average distributor can’t, and of course they already have magnificent B2C sites.

But does a distributor’s size really matter in this high-touch, personal and customized business?

Staples, the largest market leader, has had a direct pipeline to B2B buyers in the promo space for years now and a healthy online advantage, yet they still command less than three percent of the market share.

If Staples hasn’t made a more significant dent, why does any large brand like Amazon and Walmart still pose such a threat?

The problem we have, as an industry, is chronic and twofold:

1 The Inferiority Complex: We’re crippled (unjustifiably so) by an inferiority complex when comparing ourselves to larger brands, which is ludicrous, as most large companies do not disrupt industries as much as they chip away at market share (Amazon is perhaps the sole exception). Disruption generally occurs from smaller, more nimble radicals (hello, Airbnb). We all know a story about the downfall of a giant by a small disruptor—a shepherd and a simple slingshot can still topple the largest foe.

2 The Echo Chamber: We’re victims of our own industry echo chamber. We’re in a friendly industry (and I am thankful for that!), but this also means it’s a close industry. Crippled by our inferiority complex, we tend to fall prey to the negative confirmation biases that resound within the walls of our industry. We swirl rumors and negative news because fear-mongering still has a mesmerizing quality to it and it’s too dramatic to ignore. But it creates an outlook that is fear-based rather than opportunity-based.

For some context, when we consider the might of a company like Amazon, remember that though they are responsible for 44 percent of all U.S. e-commerce sales, they command just four percent of all U.S. total retail sales.

The first real question about online promo sales—the one that no one seems to be asking—is: What kinds of sales are these? Have we become so fearful about outside threats that we’ve failed to examine just what kind of threat this really is to our business?

There are typically two types of online sales: consumer-driven, small orders (though there are also huge orders coming to online players too), and price-driven customers, who are different than the average clients in a consultative, creative distributorship.

Online sales are, for the most part, transactional; offline sales are, for the most part, consultative.

To help us gain a different perspective, consider the food industry.

Comparing transactional sales and consultative sales is like comparing fast food and fine dining. Both serve food, both are in the food industry, but they serve two completely different markets for two different reasons. What does fast food sell? Convenience. What does fine dining sell? Experience. Does fine dining cower under the threat of fast food? No! It’s ridiculous to think so, because they are not in the same business.

A fine dining establishment isn’t threatened by fast food; therefore, they don’t even think about trying to become fast food—they don’t allow the fast-food industry to reshape their identity. Yet in the promo industry we are still trying to be all things to all people and serve all markets. We are also trying to build an ecommerce component into our consultative enterprises even though these are two entirely different businesses.

For example, to seriously play in the promo online space requires an all-in attitude—no part-timers or dabblers can make a dent in that space without a serious investment in both infrastructure and ad spend. And by serious, I mean serious. Generally, six figures (or more) in tech infrastructure and six-figures in ad spend, annually.

The second serious question that no one seems to be asking is: What about the other 76.5 percent of the business?

What about the $17-plus billion that is “the fine dining experience” of the promotional products industry?

This vastly larger part of the market has higher margins, higher order averages, larger per-client-revenue and is high-touch service (which means it cannot be easily replaced).

Is the saber rattling in our industry so deafening that we’ve lost all common sense? Why isn't everyone in the fine dining business trying to get into fast food? It’s virtually impossible to focus on two separate markets with the same business.

I wish we could trade every minute we talk and worry about Amazon or suppliers selling direct for a conversation simply about building better businesses for our clients. If we traded all that time and negative energy for positive ideas, we could future-proof our industry.

While watching for the online disruption, are we ignoring building better businesses that focus on and could command more of that $17-plus billion pie?

The Wrong “E” Commerce

I don’t want to be dismissive about the impact of ecommerce on a certain sector of the business. Some distributors will be disrupted by the Amazons and Walmarts of the world, and these are likely distributors who cannot solve problems for their customers and cannot clearly define their unique value. The online players will continue to take business from offline, transactional companies who provide no real solutions.

I would also not suggest that ecommerce is unimportant; it is vitally important and has influenced the way B2B customers buy. But the “E” commerce we should be passionately pursuing is engagement commerce. Given that shopping cart-driven ecommerce is 23 percent of a $23 billion market and drop-ship sales from a highly engaged and consultative approach represent 77 percent of the market, it’s time we stop focusing on the threat of ecommerce and shift our attention (and resources) to enhance the customer experience through richer engagement.

The consultative companies that provide solutions-through-product via consultation and that enhance and streamline the customer experience through technology will continue to command higher margins, continue to grow and continue to thrive.

In the end, the final question becomes more about a question of being. If you were to become a restauranteur tomorrow, would you want to open a five-star steakhouse or a McDonald’s? Both are valid decisions that can lead toward profitability, but you can’t arrive at an actionable answer by asking, “How do I capture all food sales?” Yet, in the promo business, that’s what many try to do by becoming all things to all people, which is exactly how to commoditize your business and sacrifice your identity. German philosopher Arthur Schopenhauer wrote, “We forfeit three-fourths of ourselves in order to be like other people.”

You only answer the final question by asking: “Who do I want to become? Which clients would I enjoy serving the most? What kind of business would bring me the greatest return, the most profit, and (dare I suggest it), joy? And, what distinguishable, engagement experience do I want to create for me, my team, and my customers?”

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Bobby Lehew is chief content officer at commonsku, an industry business management platform. He has won multiple PPAI Pyramid awards and was named to OKC Biz magazine’s 40-Under-40 in 2009 and to ASI’s Hot List in 2010.

Nice article Bobby. It will indeed get people thinking, brings to mind two thoughts that are very relevant in the discussion. First, what do Millennials want? Many successful entrepreneurs I know are changing their business to be more reflective of what they emerging buyer wants vs. what they want. An example would be online stores. They do not count in industry sales, but, what % of transactions that occur in the thousands upon thousands of online stores are counted in online sales? Zero. That is not reality. Stores are a great example of where consultative sales and online sales come together for the greater good of the customers needs. The second thought is that decision makers today buy steak online, lol.... In another lifetime for me helping a very vibrant online platform to relevancy, we experienced 6-figure sales every year, much more than an anomaly. As an industry, and now that I am helping build a Hybrid Distributorship, we believe it is important for distributors to accept the fact that very large online orders occur daily. Look at Carvana as an example. Also, there are thousands of purchase orders issued daily from companies buying promotional products online that are being sent into their vendor of choice because most websites cannot accept PO transactions, yet...….. The next few years with all the consolidation will be very interesting, there is a wonderful niche for the 95% of the distributors who generate half our revenue . Billions in sales are available with the tools available. Just do it!

Al Kernan, retired

September 19, 2018

Far be it from me to argue with Mr. Lehew's wonderfully argued, very persuasive analysis and vision (here comes the but), but, seriously, this is to put an emphasis on his caution that the 'online' threat can not just be dismissed. Let me play devil's advocate by using a philosophy professor's advice I've long remembered: 'if you accept someone's analogy, you accept their argument' .. so let's review Mr. Lehew's clever food industry analogy that suggests the either-or premise that either you are an online focused distributor or consultative oriented. 'But' indeed. Isn't the reality now, and certainly in the future, that a healthy promo distributor NEEDS to/will NEED to offer both excellent online and off-line service? I.e., don't distributors now NEED to, and won't you increasingly NEED to, offer BOTH a Morton's Steaks fine dining and Morton's Burghers fast food experience to satisfy your clients' diverse needs? * Food for thought ...